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Read Making a Killing

home / healthcare / in the media

Associated Press State & Local Wire
May 05, 2003

by Staff Writers

HMO that serves Medicaid patients criticized for hefty profits

LONG BEACH, Calif. -- Molina Healthcare Inc., one of the nation's most profitable HMOs that serves Medicaid patients, is under fire for hefty profit margins at a time when states are slashing health programs and as doctors claim they are losing too much money caring for Medicaid patients.

With nearly 500,000 members in California, Michigan, Utah and Washington state, Molina's earnings rose to $30.5 million last year, up from $2.6 million in 1998. The Long Beach-based health maintenance organization is now preparing to go public in a $115 million stock offering.

The size of Molina's profits is "shocking," Jerry Flanagan, a director with the Foundation for Taxpayer and Consumer Rights, a Santa-Monica-based nonprofit group, told the Los Angeles Times for Sunday editions. "HMOs that are serving the lowest-income population on the state's dime are making huge profits. It's a great time to be an HMO investor but a bad time to be a patient."

Molina executives declined comment, citing a Securities and Exchange Commission quiet period for companies preparing to go public.

In regulatory filings, the HMO attributes its financial success to providing efficient medical care and to its experience serving culturally diverse communities.

Molina caters to patients in inner cities, focusing on Hispanics, blacks, Asians and Russians. Nearly all its $644 million in revenue last year came from Medicaid, which is supported by state and federal funds and covers about 47 million people nationwide, more than half of them children.

"They seem to have the formula in place," said David Menlow, president of IPO Financial.com, a New Jersey data service that tracks initial public offerings.

But according to some health professionals, consumer advocates and independent reviews, Molina partly profits because its members do not see doctors when they should and may not complain when they are denied care.

Reports from the state of California and an independent health care analyst who researches HMOs show that Molina's pediatric patients in California and Michigan tend to have immunization rates well below the statewide average.

In addition, Molina and other HMOs that serve Medicaid patients in California readily shift care of acutely ill children to state programs such as California Children Services, thereby reducing their exposure to some of the most expensive cases.

As an HMO, Molina gets set monthly payments from the government based on its Medicaid enrollment, not on the number of patients seen or services provided.

Dr. Ellis Beesley, a Los Angeles pediatrician on contract with Molina, says the HMO makes money by underpaying doctors. If Molina gets $40 a month from the state for each member, he might get $10 to $12 a month from Molina for each patient that has picked him for a doctor, he said.

That fee doesn't increase even during the flu season, when a child may come see him several times a month, Beesley told the Times. "So where does that extra $30 go? They are making money because they don't pay the physician properly."

But Molina also has its supporters, including Julie Olson, a director in the Utah Department of Health. "Molina has done a good job for us. They are very good a looking at what is the most cost-effective solution for the patient to get care," she said.

When Molina makes its stock offering through underwriter Banc of America Securities, it will join a few major Medicaid HMOs that have gone public in recent years, including Amerigroup Corp. of Virginia Beach, Va. and Centene Corp. of St. Louis, Mo.


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